You can trade small accounts of real money if you really want to.
Just don’t expect it to change your life, at any point.
The numbers don’t lie.
Episode 33 ruffled a few feathers. It also got a lot of people out of La-La-Land.
Mission accomplished.
You can check out the episode here, or simply continue reading on.
The person who asked Episode 33’s question’s name will be with-held
“I am trying to use the risk management you talked about in the risk video. But my account is only 5oo Euros, and the risk isn’t working out. What should I do?”
John Doe, Parts Unknown
Been There, Done That
John Doe is correct, the risk profile I gave you in the Risk blog post is not solvent with a very small account.
This, amongst other reasons we’ll talk about in this blog post, is why you should not trade small real money accounts.
Almost nobody has a few hundred thousand dollars lying around to trade, but this is about what you will need to trade for a living with nothing but your very own trading capital.
“Nuh-uh!” Cried the crowd.
“Don’t kill our non-sensical dreams!!”
“Yes”, said VP, ever so calmly.
I had dreams of flipping a small account into a big account too. And I quickly blew out three of them, all the way down to zero.
More on this in a minute.
Kick In The Balls
I get it, even after I told you not to, not even six weeks ago you still had dreams of turning your small real-money account into something viable.
I was getting questions on this almost daily.
If you had a dream of trading a small real money account and turning into something you could live off of one day, you really haven’t been listening at all.
…..or perhaps you just didn’t want to. Ignore it, and it might go away, right?
Reality doesn’t go away. It’s here to stay. May as well face it.
Numbers. Don’t. Lie.
What do you guys really expect to gain with trading a small real money account right now?
Be honest.
“Not much?”
Well that sounds like a pretty big waste of your time and money. I’m sure that money could be better used elsewhere.
“I’m gonna live off of it one day”.
You should read on.
I mentioned all the way back in Episode 5 of the podcast, how even with $100,000 in a trading account, it was tough to live on.
Almost everybody who comes to this site wants to trade Forex for a living some day. If you don’t, whatever, I’m not talking to the outliers.
But even with a 100k account, this is hard to do.
How much money would it take a year for you to live in a developed country, quit your job, and comfortably live off of gains made in Forex trading?
$20,000?
I hope so, because even on a $100K account, if you traded at a Warren Buffett level(~20% YoY), this is all you’d make.
And you’d have no chance to go higher, because you’re withdrawing that money, and can no longer compound.
You could live off of that, sure. But it would get old quick, and I doubt that was really the dream you had in mind.
Now let’s pretend you can achieve those types of gains year after year, and you are just going to roll it all over and see how soon you can get to baller status.
With let’s say…..$5000 of real money, at a Warren Buffett clip, being remarkably consistent with it…
Year 1: 5000 + 20% = 6000
Year 2: 6000 + 20% = 7200
Year 3: 7200 + 20% = 8640
Year 4: 8640 + 20% = 10368
Year 5: 10368 + 20% = 12442
Year 6: 12441 + 20% = 14929
Year 7: 14929 + 20% = 179145
Year 8: 17915 + 20% = 21497
8 years, and you have just over a fifth of what you would need to make 20k a year.
Tired yet?
And this is with a $5000 starting account. Most people are trading far less.
I’m not the one killing your dream here.
Reality and mathematics already did this for you a long time ago.
“But Ima Double My Account Every Year”
First off, no you’re not.
This way of thinking is what ate up all of my past accounts.
I was well aware that 20% of what my broke ass had wasn’t going to cut it.
I clearly needed more.
Was I going to get there following smart money management?
Fuck no! Leverage up baby!!
These dreams are going to make you over-leverage and over-risk, because you’ll never achieve them if you don’t.
Now price is only going to go one of two ways. Doubling up, or even tripling and quadrupling up is not out of the realm of possibility in this game, when reckless risk management is used.
Doing this over and over again however, is COMPLETELY out of the realm of possibility.
Win this, and then win it again, and then win it again. Easy!
But again, emotions are high, and dreams are big. You refuse to take “no” for an answer!
“I’m backtesting these systems that barely ever lose!!”
Then, because math is math, and probability is real, and reality is real, you’re going to lose it all sooner or later.
But let’s pretend like we’re all stupid, and you do double up every year.
Year 1: $5000 x 2 = $10,000
Year 2: $10,000 x 2 = $20,000
Year 3: $20,000 x 2 = $40,000
Year 4: $40,000 x 2 = $80,000
Year 5: $80,000 x 2 = $160,000
Congratulations! You kind-of got there in 5 years doing something completely impossible!
And again, you started out with more than most people at $5000.
Over-leveraging is a death sentence. Bad risk management is a death sentence. It’s just a matter of how soon are you gonna die.
The sooner you realize this, the better off you will be, so you can stop with this nonsense, and start doing what you actually NEED to be doing.
A Much Better Idea
Stop me if you’ve heard this one before, but Demo trading until you have a system you know works great over time, is forever going to be Step 1 in this whole process.
If you’re trading real money instead right now, you…are…not…doing…this.
You’re testing out your systems with real money.
“Why would you do that?”
I have not even given you all the things you need to put a real algorithm in place yet!
And you think you know enough to start dicking around with real money??
The podcast hasn’t even been up for more than 7 months by now, so I know you guys haven’t been forward testing your systems long enough.
You guys are deviating from what works, and wondering why I’m not approving of it.
If You Just Wanna Save Up
So others want to have a nice supplemental income off to the side, and this is why they trade.
I like it. Never a bad idea.
But this does not excuse you from trading real money right now instead of demo.
Option 1:
Make all of your mistakes on demo, create a great system without having to risk any of your hard-earned trading capital, then once you know you have something great, transfer that system onto a real money account, and watch it grow.
Option 2:
Take your hard-earned trading capital, and test out different ways of trading on it, and hope you discover the best way before your entire account disappears.
Seriously guys, this isn’t even a choice, is it?
Conclusion
I do not want you to lose your real money like I did. And this is why I create blog posts like this.
I know it sucks. I know this dream you had, ridiculous as it was now that you look back on it, is dead.
But it needed to die.
You can’t try and follow a system like the one we use here, under a false pretense.
It’s like building a house on a sinkhole.
Your lack of experience is already going to deal you a few bad hands over the course of your growth, don’t let something like this add to the hard knocks.
Because the only thing I know for certain here is that it will.
— VP